Corporate Bond Funds – Let’s Bond over this Type

As known, the mutual fund invests not only in equities but also in debt. Of course, investors are free to choose asset class as per their goals and risk-appetite. Again, the debt part is divided into three other categories. Here, we’ll be giving information about corporate bond funds. Take a read:

CORPORATE BOND FUNDS

It is an open-ended debt scheme that invests at-least 80% of its total assets in high-rated corporate bonds. These funds can provide high-returns, thus, carrying a minimal amount of riskby investing in high-rated investments.

WHO SHOULD INVEST?

Corporate bonds are considered as a good choice who are looking for a fixed criterion but with high income from a safeavenue. It’s a low-risk vehicle, as compared to debt funds because of its capital protection. If you are thinking to opt for this bond, then putting money in high-quality debt instruments can serve you with better financial goals.

BENEFITS & FEATURES

Price of the Bond: Every bond comes with a price and it’s not static. You can buy a similar bond at different prices, based on the time-period you choose.

Components of Corporate Bonds: These bonds invest particularly in debt paper. Companies issue the debt papers, which include debentures, structured obligations, bonds, and commercial papers. Each of them carries a maturity date and a unique risk profile.

Current Yield: The annual returns making from the bond is known as the current yield. Example: If the coupon bond rate is INR 1000 par value 20%, then, the firm is liable to pay INR 200 interest yearly.

Coupon/Interest: Buying a bond makes the company pay you regular interest until you end up existing the corporate bond. This is known as coupon or interest, which is a specific % of the par value.

Yield to Maturity: YTM or Yield to Maturity is the in-house returns rate of all the cash-flows in the bond, the principal, the present bond price, and the coupon payments till maturity. Greater the YTM, higher will be the returns, and vice-versa.

Allocation & Exposure: Corporate bond funds do take the initiative to government securities also, but they can do this only when NO suitable opportunities in the credit space are giving their availability.

Tax-Efficiency: If you are holding the fund for less than 3 years, you are liable to pay short-term capital gains tax. But, if it’s more than 3 years, then section 112 mandates 20% long-term capital gains tax.

TYPES

Broadly TWO types:

Type One: It sticks to high-rated companies as in public sector unit or PSU and banks.